Financial Pressure Mounts for Elderly : Stringent Cost Controls, Sacrifices Save Medicare

Medicare, which a mere 17 months ago appeared headed for bankruptcy within a decade, has been pulled back from the brink.

Thanks to lower medical inflation and stringent cost controls, Medicare’s future now appears less menacing both for taxpayers, who would probably be called upon to keep the program solvent, and for the elderly, who would lose their federally subsidized health care if the program went under.

But the outlook would not be so rosy without some sacrifices by almost everyone associated with the program:

--The elderly are paying an increasing share of their income for health care.

--Doctors and hospitals are being squeezed by new cost controls.

--Taxpayers are contributing slightly more to the Medicare sys tem.

For all that, Carolyne K. Davis, who runs Medicare as head of the government’s Health Care Financing Administration, still pronounces it “a very good deal.” The average elderly person, she said, will receive medical services worth seven times as much as the Medicare taxes paid during a working lifetime.

However, to advocates for the elderly, this is scant comfort. “No matter where I go, I hear people saying the cost of health care worries them more than anything else,” said Vita Ostrander, president of the 18-million-member American Assn. of Retired Persons. “This issue stares them right in the face--they feel most vulnerable.”

And to the hospital industry, the cost controls hold some ominous implications about the quality of care that hospitals can offer. In particular, public hospitals are worried that they will become the dumping ground for all of the elderly poor--and that they will not be able to serve them adequately.

But at least Medicare seems assured of continuing to exist in basically its current form almost to the end of the century.

As recently as December, 1983, a special government commission, fearing for Medicare’s future, suggested that Congress consider raising the Medicare eligibility age from 65 to 67. A few months later, the trustees who oversee the program said the Medicare trust fund could run out of money by 1991.

Now those same trustees foresee bankruptcy no sooner than 1998, thanks to a combination of new developments and additional cost-cutting measures proposed by the Reagan Administration for next year. And no one is suggesting anything so drastic as raising the Medicare eligibility age.

Rescue Package

Even with current and prospective cost controls, Medicare spending eventually will outrun revenues as the number of elderly persons rises and medical technology becomes more costly. Before the program’s trust fund is depleted, however, Congress can be expected to take steps to keep the program going, just as it produced a Social Security rescue package in 1983.

“But there is no sense of immediacy now,” Rep. Robert T. Matsui (D-Sacramento) noted. “We usually don’t act quickly around here unless there is an immediate crisis. Congress will tackle the problem, but there’s no pressure to act for several years.”

Because of cost controls already in place, Medicare increasingly does not immunize the elderly from health costs. As of now, Medicare covers only about half the cost of medical expenses for its 30 million participants: 27 million persons 65 and older and 3 million disabled Americans of all ages.

Before Medicare’s enactment in 1965, the elderly were spending about 15% of their income for their health care. This year, despite Medicare outlays of about $66 billion, they are still expected to spend about 15%. But without Medicare, they would have to pay 30%--a measure of how health care costs have ballooned in the last two decades.

‘Seemed Like a Godsend’

When Medicare was enacted in 1965, said Dr. William H. Swanson, medical director of the Harbor-UCLA Medical Center in Los Angeles, it “seemed like a godsend” to his elderly mother.

“Here was the government going to help out in a major way with these medical costs,” he said. “Now, 20 years later, we’re seeing that she and other older people are going to have to share in these costs more and more. Yet her ability to pay is getting less and less. . . . She’s almost 80 years old, and there’s going to be illness on the way before she dies. And this is a source of worry to her.”

The financial pressure on individuals will get worse. The deductible that individuals must pay for hospital stays occurring at least 60 days apart is scheduled to jump from $400 at present to $476 next year, the biggest hike in Medicare history.

This increase also will affect the elderly who must be hospitalized for long periods. For consecutive days in the hospital beyond the first 60, Medicare patients must make daily payments--equal to one-fourth of the deductible--of $100 a day this year, rising to $119 next year.

Yearly Deductible

Moreover, the Administration has proposed that the yearly Medicare deductible for doctors’ services, now $75, be increased along with the inflation rate. Likewise, the monthly premium for insurance covering doctors’ services, now $15.50, would jump to $16.80.

These three changes would add $11 billion to the elderly’s medical costs during the next five years. And, on top of that, the Administration wants beneficiaries to pay an additional share of the cost of home health care.

By the end of the decade, the House Aging Committee estimates, the share of income that Medicare beneficiaries will contribute to their medical bills will climb from today’s 15% to 18%.

If that burden is more than some of the elderly can bear, Davis pointed out that the Medicaid program for the poor remains available. About 4 million Medicare recipients also qualify for Medicaid, a state-run, federally assisted program of health care for the poor that has stringent eligibility standards and requires recipients to have virtually no assets or savings.

More Affluent Elderly

But the health cost burden is also being felt by the more affluent elderly. Tom Kennedy, senior vice president and chief operating officer of Manattee Hospital in Bradenton, Fla., said he had advised his mother-in-law 12 years ago not to bother with a private insurance policy to supplement Medicare.

“Now I’d say that a co-insurance policy is a good idea,” he said. “Years ago, Medicare patients would leave the hospital and they might owe us $15. Now it’s not unusual for a Medicare patient to write out a check for $600.”

Not only the elderly but also those who provide their health care have been squeezed by the effort to rescue Medicare. Before 1983, for example, Medicare simply reimbursed hospitals for services rendered, no matter what the cost. But a 1983 law trimmed payments to hospitals by setting up fixed reimbursement rates for various diagnoses.

Consequently, hospitals for the first time have a stake in getting patients out quickly. Hospitals that can treat and discharge patients for less than the government pays for their particular medical conditions can pocket the difference in costs. If treatment costs more than the government allows, hospitals suffer the financial loss.

‘Decreased Admissions’

“There’s no question in my mind” that the new system is curbing outlays, said Thomas M. Priselac, vice president of Cedars-Sinai Medical Center in Los Angeles. “It has decreased hospital admissions. It has decreased length of stay.”

Medicare Administrator Davis boasted in a recent speech: “Some hospitals have hired marketing directors. Some have opened up lower-cost care units for the less seriously ill. We are seeing package deals offered for certain kinds of surgery that include total hospital and doctor payments.”

Medicare beneficiaries who enter hospitals are finding that they must leave sooner than they might have under the old system. Many operations are done in a doctor’s office and on an out-patient basis. And some procedures are not being done at all. “That’s a change in our level of expectations,” Davis said.

The Administration intends to squeeze hospitals still harder next year by allowing no increase in hospital reimbursement rates. Hospitals are nervous about being able to provide quality care on fixed budgets, and hospital managers in comparatively high-cost areas such as California fear that they may become big losers under the tough new reimbursement program.

Charity Work Affected

Public hospitals, which must treat anyone who comes through the door, are particularly concerned. Many nonprofit hospitals, which performed considerable charity work under the old Medicare system, no longer can afford to do so.

“They could take the poverty cases before, but now they’re saying they can’t do it,” Rep. Matsui said. That means that public hospitals could become the dumping grounds for elderly patients whose care proves unprofitable at other hospitals under the tough new Medicare rules, he said.

Dennis Andrulis, research director of the Assn. of Public Hospitals, said the big public facilities are burdened with poor patients who are “basically sicker” than middle-class Medicare beneficiaries and who cost more to treat.

“Somebody comes in because of a heart attack and also has an advanced state of diabetes; maybe he is a street person with pneumonia too,” Andrulis said. But, because Medicare now will pay to treat only the primary ailment, he said, the public hospitals will probably lose money on many such cases.

‘One Basic Illness’

And, Andrulis said, “we can’t say to the patient: ‘Medicare only paid for this one basic illness, so goodby and check you later, Jack.’ ”

Congress gave the Administration until Dec. 31 to prepare a list of hospitals that serve an unusually large number of poor persons and to devise a system of additional compensation for them. The Administration has refused to issue the list, on the ground that it does not believe that hospitals with large numbers of poor persons have unusually high Medicare costs. The House Ways and Means Committee is drawing up its own list.

Like hospitals, doctors also have begun feeling Medicare’s pinch. Congress froze Medicare reimbursement rates to doctors as of July 1, 1984, a freeze scheduled to remain in effect through this Sept. 30. Now the Administration is seeking to extend the freeze for another 12 months.

But that is one cost-cutting measure that may not fly. Rep. Henry A. Waxman (D-Los Angeles), chairman the House Energy and Commerce health subcommittee, said the medical community, which cooperated with the initial 15-month freeze in hopes of a raise the following year, regards the additional 12 months as a “betrayal.”

Freeze ‘Ill Advised’

Dr. James E. Davis, testifying on behalf of the American Medical Assn., told the House Aging Committee that an extended freeze on hospital and doctor fees is “ill advised and will compromise the ability of the health care system to meet the needs of the elderly.”

But the Administration argues that all of the spending restrictions are vital to Medicare’s sound financial health and can be carried out without any loss of health care quality. “Our strategy is working,” Medicare Administrator Davis, who is no relation to the AMA’s Davis, said.

Some favorable economic and demographic trends have contributed to the effectiveness of that strategy. Medical cost increases have fallen with the general inflation rate, from 16% four years ago to 5.9% last year. And hospital admissions fell 4% last year after rising for half a century.

For all of these reasons, Medicare’s trustees last month revised downward by $70 billion their estimate of a year earlier of total Medicare spending for the next five years.

Payroll Tax Hike

At the same time, the payroll tax that finances the hospital component of the Medicare program is slowly rising, from 1.3% in 1984 to 1.35% this year and 1.45% next year.

The payroll tax--employers pay an equal share for each employee--finances Part A of Medicare, which helps pay hospital bills. Doctor bills are covered by Part B, a government-run insurance program financed 75% by general tax revenue and 25% by participants’ monthly premiums.

But the tax changes already had been scheduled when the Medicare trustees issued their gloomy prognosis in April of last year. It is on the spending side that the Medicare picture has brightened since then, and Administration officials insist that costs are being controlled without hurting access to quality health care.